ArcelorMittal, the world's top steel maker, is in talks with Australia's Macarthur Coal after buying a 15 percent stake in the company, setting up a possible bidding war for the A$4.4 billion group and pushing its shares up 14 percent.
Soaring coal prices, driven by demand from fast-industrializing China and India and tight supplies, have put Australia's mining sector in play amid a global resources grab.
Arcelor paid about A$630 million ($604 million) for the 14.9 percent stake it bought on the market, or about A$20 per share, a 9 percent premium to Macarthur's closing price on Tuesday.
"ArcelorMittal is a very large coal consumer and is looking to vertically integrate. There is a lot of motivation for them to launch a full takeover for Macarthur," said Mark Pervan, a senior commodities analyst at the Australian & New Zealand (ANZ) Bank.
"With reports of CITIC and Xstrata also circling the company, that will put a lot of pricing tension on the stock since this could potentially lead to a bidding war."
Macarthur said Arcelor had approached it about a transaction. It did not give further details, but said it was already in talks with another unidentified group.
Shares in Macarthur, which have jumped nearly 62 percent since April 18 after it said it was in takeover talks with an unnamed group, were up 8.1 percent in Sydney trading.
Shares of other potential Australian mining targets Centennial Coal and Felix Resources also gained.
Arcelor's move is seen as an effort to secure the raw materials needed for steelmaking and contain rising costs.
Australian coal miners, benefiting from sky-high prices, are also vying to control larger portions of the export market, while China has an ever-increasing presence in the local sector.
China's state-owned CITIC Group, which owns 19.9 percent of Macarthur, is considering a bid to raise its stake in the coal miner in a deal estimated to be worth $830 million, the South China Morning Post reported earlier this month.
The paper said Switzerland-based mining giant Xstrata was also in takeover talks with Macarthur Coal, while BHP Billiton , Rio Tinto and Brazil's Vale had considered bidding for the stake held by CITIC and Macarthur's founder Ken Talbot, who has been selling down his stake
of around 24 percent.
Macarthur exports a special type of coal that costs less than coking coal, but can be used in pulverized coal injection (PCI) blast furnaces that steel makers use.
Its operations in Australia accounts for about 35 percent of low volatile PCI coal exports worldwide, according to Macarthur's Web site.
Macarthur, which mostly mines coal for steel making in northern Queensland state's Bowen Basin, has appointed JP Morgan as its financial advisers.